Market Outlook

March 2020

Equity Roundup - Movement in February

IndexClosing Value

1-Mth Return (%)

1 YrReturn (%)

Current Value

P/E P/BDividend

Yield

Nifty 50 11202 -6.36 3.79 25.49 3.15 1.36

Sensex 38297 -5.96 6.77 23.21 2.95 1.15

BSE Mid cap 14600 -5.57 1.97 27.02 2.35 1.18

BSE Small cap 13709 -6.54 0.14 419.64 1.90 1.19

BSE 100 11293 -6.54 2.77 21.46 2.64 1.34

BSE 200 4719 -6.40 3.42 23.72 2.64 1.31

BSE 500 14628 -6.53 3.03 24.18 2.52 1.32

Data as on 28 Feb’20; Source: ICRA MFI, NSE and BSE website. *S&P BSE Sectoral Indices movement between 31 Jan’20 to 28 Feb’20 in % terms

• Barring Consumer Durables and Telecom; all other sectors ended deep in the red, with Realty being the worst hit, down 15.9%, followed by Auto andMetal, down 14.3% and 13.2%, respectively. While, Capital goods and PSU were down 11.8% and 10.5%, respectively.

• Market participants got jittery that the wide spread of the virus across countries will hit trade and normal business, which was supported by theearnings downgrade by a few global rating agencies.

2

(15.9)

(14.3)

(13.2)

(11.8)

(10.5)

(9.6)

(9.4)

(6.9)

(5.8)

(5.6)

(5.3)

(3.4)

0.02

0.4

(18.0) (14.0) (10.0) (6.0) (2.0) 2.0

Realty

Auto

Metal

Capital Goods

PSU

Power

Oil & Gas

Energy

FMCG

IT

Bankex

Heath Care

Consumer Durables

Telecom

3

Equity Market Roundup - Key Takeaways

• Performance: Indian equity indices nosedived in line with the global markets due to persistent worries about the spread ofcoronavirus worldwide. The benchmarks S&P BSE Sensex and Nifty 50 plunged 6% for the month of February’20.

• Positive Factors: A combination of good PMI data for Jan 2020 and the RBI’s announcement of LTRO (Long term Repo Operations)boosted investor sentiments.

• Positive inflows from domestic institutional investors (DIIs) and foreign institutional investors (FIIs) also boosted sentiments.

• Negative Factors: Domestic economic growth concerns and worries over the impact of the coronavirus outbreak on the globaleconomy; dented market sentiments.

• Even the International Monetary Fund sounded warning alarms that the epidemic would put an already fragile global economyrecovery at risk.

• More losses followed after the Supreme Court ordered telecom players to clear dues by March 17, 2020.

• Subdued GDP growth numbers further hampered the markets. GDP growth slipped to a 27-quarter low in Q3FY20, coming in at4.7% compared to 5.1% in the previous quarter (revised upward from 4.5%).

• Outlook: As the market digests concerns over the coronavirus spreading in China and other countries, markets could stay volatilein the near term. Going forward, it will be important to track the mortality rate of the virus and for signs of new infection caseseasing out. There are expectations that onset of summer might lead to the virus dying out. Nevertheless, this event will be keenlytracked by the markets.

• To stimulate the economy, central banks (U.S.A and Australia) have started to cut rates and more central banks are expected tofollow the trend. This will help to infuse the liquidity into the system which might help market to stabilize going ahead.

• Historical data shows that during previous global virus outbreaks, markets fell, but also recovered quickly post the outbreaks(refer slide no-4).

4

Historical data shows that during previous global virus outbreaks, markets fell, but also recovered quickly post the outbreaks.

How the Equity Market performed during past Viral Outbreaks

Virus outbreakEstimated period of

outbreak

Returns during outbreak (%) 1-year return post outbreak (%)

US S&P 500 Sensex US S&P 500 Sensex

SARS Jan 2003 to Mar 2003 -3.6 -10.1 32.8 83.4

Avian Influenza Jan 2004 to Aug 2004 -0.7 -12.2 10.5 50.3

Ebola Dec 2013 to Feb 2014 3.0 1.6 13.2 39.0

Zika Nov 2015 to Feb 2016 -6.3 -13.1 21.3 24.1

Coronavirus Jan 2020 to Feb 2020 -10.0 -7.2 NA NA

Returns are absolute. Source: Bloomberg, Mint Research

5

Macro Economic Update

Consumer Price Index(CPI): CPI rate accelerated to 7.59% YoY inJan 2020 from 7.35% in Dec 2019 and 1.97% in Jan 2019. Foodinflation dropped to 13.63% in Jan compared with a growth of14.19% in Dec and a degrowth of 2.24% in the same month ofthe previous year. Food and beverages inflation rose to 11.8% inJan compared with 12.2% in Dec.

Wholesale price index (WPI): India’s WPI - based inflation movedup to 3.1% in Jan 2020 from 2.59% in Dec 2019 and 2.76% in Jan2019. Fuel and power inflation came in at 3.42% in Jan from1.46% in Dec. LPG inflation increased 1.78% in Jan from adeacceleration of 14.69% in Dec.

Inflation:

Deficit:

Fiscal Deficit: India’s fiscal deficit from Apr 2019 to Jan 2020stood at Rs. 9.85 lakh crore or 128.5% of the budget estimate(BE) against 121.5% of the BE in the corresponding period of theprevious year. The revenue deficit in the same period stood atRs. 7.50 lakh crore or 150.0% of the BE against 143.4% of the BEin the corresponding period of the previous year.

Trade Deficit: India’s exports dropped 1.66% to $25.97 billion inJan 2020, which was the sixth straight month of contraction dueto significant fall in shipments of petroleum, plastic, carpet, gemsand jewellery. Imports fell for the eighth consecutive month,down 0.75% to $41.14 billion in Jan, widening the trade deficit toa seven-month high of $15.17 billion.

IIP and Manufacturing PMI:

Index of Industrial Production (IIP): The IIP growth contracted0.3% YoY in Dec 2019 as against growth of 1.8% in Nov 2019 andincrease of 2.5% in Dec 2018. Mining rose 5.4%, whilemanufacturing and electricity deaccelerated 1.2% and 0.1% inDec 2019.

Manufacturing PMI: Nikkei India Manufacturing PurchasingManagers' Index (PMI) slowed to 54.5 in Feb 2020 from 55.3 inJan 2020. The month saw rates of growth for factory orders,exports and output holding close to Jan's highs.

6

Inflation and Industrial Production Trajectory

IIP is having a roller coaster ride after being in the positive territory for a month slipped back into the negative zone

CPI continued to breach the RBI’s upper tolerance limit of 6.0%

2.0%

2.6%2.9% 3.0% 3.0% 3.2% 3.1% 3.3%

4.0%

4.6%

5.5%

7.4%7.6%

1.50%

2.50%

3.50%

4.50%

5.50%

6.50%

7.50%

8.50%

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

De

c-1

9

Jan

-20

Consumer Price Inflation (CPI)

2.5%

1.6%

0.2%

2.7%3.2%

4.5%

1.3%

4.9%

-1.4%

-4.6%-4.0%

1.8%

-0.3%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

De

c-1

8

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Au

g-1

9

Sep

-19

Oct

-19

No

v-1

9

De

c-1

9

Index For Industrial Production (IIP)

7

Macro Indicators

Current Quarter Ago Year Ago

Equity Net Flows

Mutual Funds (Rs. Cr) 4,739 (Feb-20) -4,822 (Nov-19) 2,174 (Feb-19)

FIIs (Rs. Cr) 1,820 (Feb-20) 25,231 (Nov-19) 17,220 (Feb-19)

Economic Indicator

Consumer Price Index (CPI) 7.59% (Jan-20) 4.62% (Oct-19) 1.97% (Jan-19)

Wholesale Price Index (WPI) 3.10% (Jan-20) 0.00% (Oct-19) 2.76% (Jan-19)

Industrial Production (IIP) -0.30% (Dec-19) -4.58% (Sep-19) 2.53% (Dec-18)

GDP 4.70% (Dec-19) 5.10% (Sep-19) 6.60% (Dec-18)

Trade Deficit ($ bn) 15.17 (Jan-20) 11.01 (Oct-19) 14.73 (Jan-19)

Commodity Market

Brent Crude ($/barrel) 50.52 (28-Feb-20) 62.43 (29-Nov-19) 66.03 (28-Feb-19)

Gold ($/oz) 1,566.70 (28-Feb-20) 1,478.10 (29-Nov-19) 1,352.80 (28-Feb-19)

Silver ($/oz) 16.39 (28-Feb-20) 17.11(29-Nov-19) 15.83 (28-Feb-19)

Currency Market

USD/INR 72.54 (28-Feb-20) 71.75 (29-Nov-19) 70.84 (28-Feb-19)

EURO/INR 79.99 (28-Feb-20) 79.05 (29-Nov-19) 80.55 (28-Feb-19)

GBP/INR 93.00 (28-Feb-20) 92.80 (29-Nov-19) 93.96 ((28-Feb-19)

YEN/INR (per 100) 67.08(28-Feb-20) 65.52 (29-Nov-19) 63.60 (28-Feb-19)

signifies positive movement over Q-o-Q signifies negative movement over Q-o-Q

8

INR and Brent Crude Performance

INR Performance: The Indian rupee ended lower at 72.54 in Feb 2020 from 71.56 in Jan 2020. The rupee fell by 1.4% during the month asmore cases of coronavirus were reported in the country over the second half of the month. Moreover, fall in crude prices and a weak dollaralso could not support the forex market. Additionally, a continued upward move in domestic retail inflation and a flattish Industrialproduction number also put the rupee under some pressure.

Brent Crude: Brent Crude prices plunged 13.1% in Feb 2020 to close at $50.52 per barrel vis-à-vis $58.16 per barrel on Jan 2020. Priceswitnessed decline as the deadly virus spread across the globe and in China, that deepened fears that the global economy will slow and lowercrude demand. Besides, Russia said it needed more time before committing to output cuts also led to the sharp fall. OPECs compliance toproduction cuts also could not support the prices in the fag end of the month.

For internal circulation only

71.56

72.54

71.0

71.2

71.4

71.6

71.8

72.0

72.2

72.4

72.6

31

-Jan

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USD

/IN

R

INR Movement58.16

50.5250.0

51.0

52.0

53.0

54.0

55.0

56.0

57.0

58.0

59.0

60.0

31

-Jan

-20

4-F

eb

-20

8-F

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$ P

er B

arre

l

Brent Crude (USD)

9

Mutual Fund Performance of Categories v/s Nifty

Returns below one year absolute and more than one year CAGR. Data as on 28 Feb 2020; Source: ICRA MFI

Funds across the market cap have outperformed Nifty 50 in the past 12 months; while, Mid cap funds saw huge bounce back and haveoutperformed the index with wider margin.

7.6 7.5

5.7

10.3

8.3

7.26.3

11.3

9.8

5.8

7.0

13.7

7.1

3.1

6.4

12.2

3.8

8.1

4.7

8.6

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

1 Year 3 Years 5 Years 10 Years

Largecap Multicap Midcap Smallcap Nifty 50

10

Debt Markets - Review

11

Debt Roundup

28 Feb’20 31 Jan’20 28 Feb’20 M-o-M Change (bps) Interest Rates

Repo rate 5.15% 5.15% 6.25% 0SLR 18.25% 18.25% 19.25% 0

CD Rates

3 month 5.50% 5.40% 7.22% 106 month 5.67% 5.68% 7.52% -1

1 Year 5.85% 6.00% 7.70% -15CP Rates

3 month 5.90% 5.75% 7.70% 156 month 6.15% 6.20% 8.30% -5

1 Year 6.40% 6.55% 8.45% -15T-Bill/G-sec

91 Days 5.06% 5.12% 6.40% -6364 Days 5.13% 5.27% 6.51% -14

India 10 Year G-Sec Yield 6.37% 6.60% 7.59% -23Corporate Bonds (PSU)

3 Year 6.35% 6.65% 8.02% -305 Year 6.60% 6.82% 8.18% -22

10 Year 7.18% 7.48% 8.51% -30International Markets

10 Year US Treasury Yield 1.16% 1.51% 2.72% -353 Months LIBOR 1.46% 1.75% 2.63% -29

12 Months LIBOR 1.38% 1.81% 2.87% -43

12

Debt Market Roundup - Key Takeaways

For internal circulation only

• Performance of 10-year G-Sec Yield: 10-year Government Bond yields saw a downward sloping movement in February. The yieldclosed at 6.37% in Feb 2020, down by 23 bps from its previous close of 6.60% in Jan 2020.

• From a bond market perspective, February turned out to be a very positive month, with all segments of the fixed income marketrallying sharply.

• The Union Budget was positive for bond markets as there was no additional borrowing for FY20 despite of a fiscal slippage to 3.8% ofGDP from the original budgeted of 3.3% of GDP.

• Initially during the month, RBI emulated the ECB action by introducing “Long Term Repo” (LTRO). The RBI announced 1 year and 3 yearLTRO at the policy repo rate, which is a big move to durably address the monetary transmission phenomenon. This new liquidityinfusion will be over and above the existing excessive liquidity situation of Rs. 2- 3 trillion, thus keeping the yields low.

• Furthermore, retail inflation and industrial production numbers released during the month acted as a dampener for the bond marketsas yields fell.

• Fall in the bond yields could not be restricted by declining in crude oil prices and falling US benchmark treasury yields due to concernsover the outbreak of the coronavirus in China.

• Outlook: On the back of uncertainty associated with the spread of coronavirus beyond the borders of the China, Central banks andpolicymakers are expected to act in coordination to boost economies and businesses. In line with this the US Fed Reserve announceda 50-bps cut. Taking cues from the global central banks across the world, RBI is expected to cut the policy rates even when inflationhas stemmed above the RBI comfort zone.

• With coronavirus fears driving the markets, it is expected that yields could see huge swings in either direction, depending on howthings unfold, especially with regards to its spread in India.

13

Yields Movement Across - India and U.S.

• 10-year India Government Bond Yield: February has turned out to be a very positive month, with 10-year Government bond yieldrallying sharply. Starting with the Budget, which led to a huge sigh of relief by the bond markets, followed by the RBI MPC, whichdespite the status quo on rates, kick started LTRO operations and lastly the global bond rally driven by Coronavirus related fears – allcontributed to a sharp lower in yields across segments.

• U.S. Treasury Yield: U.S. Treasury yield tumbled nearly 35 basis points in Feb 2020 to close at 1.16%, as a massive selloff in stocksintensified on concerns about the global economic impact of the coronavirus. Yields tumbled further as the Fed signaled on the fag endof the month that it might be willing to support the economy if necessary.

6.60

6.37

6.33

6.36

6.39

6.42

6.45

6.48

6.51

6.54

6.57

6.60

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-20

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-20

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16

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20

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India 10 Year Government Bond Yield (%)

1.51

1.161.15

1.25

1.35

1.45

1.55

1.65

31

-Jan

-20

4-F

eb

-20

8-F

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-20

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b-2

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24

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28

-Fe

b-2

0

U.S. 10-Year Government Bond Yield (%)

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